Court Gives Green Light for Tesla Founder's Lawsuit to Proceed

For electric car startup Tesla Motors, it’s the little things that count in today’s ruling by a San Mateo County Superior Court judge, which essentially gives the green light for founder Martin Eberhard’s lawsuit against Tesla and CEO Elon Musk to proceed almost entirely intact. “Would we have liked to see the entire case dismissed? Yes,” Tesla spokesperson Rachel Konrad told us after the ruling today. “But we’re very happy about the founder issue,” she said, referring to the court’s decision to not define what it means to be a founder.

However, Tesla interpreted the ruling in its own way in a statement saying that “the judge struck down Eberhard’s claim asking to be ‘declared’ one of only two founders”. We asked Eberhard’s lawyer, Yosef Peretz, to comment on Tesla’s interpretation of the ruling and he said, “They can say whatever they want. They’ve been spinning this for months.”

On the other hand, Eberhard, can count some significant wins in today’s ruling: The court found that at least some of Eberhard’s libel and defamation claims, — including Musk’s statements that Eberhard caused Tesla’s financial troubles, left a mess when he departed from the company and caused delays in production of the electric Roadster — have enough merit that the lawsuit should not be thrown out.

The court also said it cannot dismiss Eberhard’s breach-of-contract claims, since that would require interpretation of the contract — again, not the court’s job at this point. And according to Peretz, his team can still argue in the next phase that it’s defamatory for Musk to state he is a founder of Tesla. That claim, he said, was not “struck down” today.

Today’s ruling, however, is nothing close to a total victory in the grand scheme of the litigation process. In this situation — Tesla filed what’s called an anti-SLAPP (SLAPP stands for Strategic Lawsuit Against Public Participation) motion, arguing that Eberhard’s lawsuit represents an attempt to “curb open discourse” and violate free speech protections — the court requires “only a minimal showing of merit” on Eberhard’s claims to decide the case should not be thrown out before all the evidence has been weighed. “It’s a preliminary stage,” Peretz said, “but it’s a statement that no one can take away from Martin at this point.”

Tesla, meanwhile, is upping the stakes on the founder question this week in the public arena — possibly a sign of what’s to come in future court filings. In their filing for today’s hearing, lawyers for Musk and Tesla focused on the legal restrictions of using the founder label and raised the issue of “prior restraint,” a violation of free speech protections, as we’ve noted before. But Musk told the AP in an interview this week that he does have claim to the founder label, and Konrad reiterated that argument in our call today. Noting that there are many definitions for “founder,” she paraphrased one from Black’s Law Dictionary: “If you provide virtually all of the seed money for a company, you should be considered a founder,” she said, adding that as chairman, Musk “had a huge role internally even though day to day operations” were handled by company executives. “It’s not like Elon parachuted in.”

To read the tentative ruling on this lawsuit that the San Mateo County Superior Court upheld today, click here.